Investing in energy efficiency is a critical piece of the climate change puzzle. Given that the built environment accounts for 39 percent of total energy use in the US, real estate investment represents one of the most effective ways to implement energy efficiency strategies. A recent report from Ceres and Mercer, reviewed in Environmental Leader, outlines the business case that investing in energy efficiency enhances value in real estate portfolios. The report draws on key industry and academic research on building efficiency’s economic impacts and outlines steps and best practices for leveraging efficiency in real estate investments, including pertinent case studies about TIAA-CREF and CalPERS.
Furthermore, the results of the report indicate that companies who fail to factor energy efficiency into their real estate investment decisions might be assuming significant risk in the future and could be overlooking substantial opportunities to enhance returns.
Once the recession subsides and business begins to churn again, it will become increasingly important that building owners and developers do what they can to improve the overall performance of their buildings if they want to gain a competitive advantage. According to Ceres President Mindy Lubber, “This report documents what common sense tells us – that an energy efficient building is a more marketable building.”
The report provides some very worthwhile suggestions about how investors can begin the process of improving the energy efficiency of the properties they own. Benchmarking energy consumption of real estate portfolios is the key first step to make properties more energy efficient. Energy Star operates an easy-to-use online benchmarking tool, Portfolio Manager, that enables building owners to benchmark and rate the energy performance of their commercial buildings.
Much of the concern about energy efficiency improvements is how to finance projects. Although lending is tight these days, there are ways to make these projects work. Government incentives, such as EPAct’s Commercial Building Tax Deduction, or ancillary sources of financing should not be ignored when prioritizing energy efficiency measures.
The benefits experienced by those in real estate will vary depending on the program implemented and the types of investments targeted, but previous research done to date and the data included in the Ceres report demonstrates that:
-Energy efficient buildings offer financial benefits in the form of higher rent, occupancy, valuation and lower operating costs.
-Poorly performing buildings represent an opportunity for a significant investment gain when it comes to energy efficiency.
-No and low cost energy efficiency improvements can have quick and dramatic impacts on property operating costs.
The results from this report may seem obvious, but there is still considerable reluctance with respect to energy efficiency investments. Hopefully reports like this one will help building owners, as well as homeowners, realize that energy efficiency investments can offer short payback periods and long term energy and cost savings. Homeowners, in particular, often say that energy efficiency is important to them, but when the rubber hits the road, they prefer to spend their money on improving their home’s aesthetics.
Ceres is a leading coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as global climate change.
Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to help solve benefit and human capital issues as well as health and retirement benefits.